Luxury Brands: The Rich Get Richer, But What About the Rest?
The luxury market has reached a fascinating moment in its history, where the upper-luxury giants are shining, but the mid-luxury players are feeling a little shady (pun intended). While some brands continue to flaunt their wealth, others are showing signs of wear and tear, especially on the stock market. If you’ve been keeping an eye on the luxury sector, you’ll know that brands like Gucci, LVMH, and Prada are seeing their stock prices slip, but there’s a very different story unfolding for high-end players like Hermès. So, what’s going wrong? And how do we turn these challenges into opportunities? Let’s dive in!
What’s Going Wrong for Mid-Luxury Brands?
Several factors have come together to squeeze mid-luxury brands between a rock and a hard place, and some are starting to crack under the pressure.
1. Demand Slowdown & Consumer Retreat
Remember when luxury was the hottest thing in town? Well, that post-pandemic luxury boom? It’s fading fast. Gucci, a crown jewel in Kering’s portfolio, reported a 25% drop in sales during Q1 of 2025. And let’s not forget that a whopping 10% of luxury consumers have pulled away from their favorite brands due to endless price hikes. It’s like that feeling when you get invited to a fancy restaurant and suddenly realize your wallet’s been left behind. Not fun.
2. Mid-Luxury Brands in the Middle of Nowhere
This is where it gets tricky. Mid-luxury brands, those that previously thrived on volume and aspirational branding, are caught in a bit of a middle-child syndrome. Not high enough to be elite, and not accessible enough to the masses. As Economy Insights puts it, “Growth pools at the very top … the center is thinning.” And, oh boy, is that thinning fast.
So, Why Are the Upper-Luxury Brands Thriving?
Here’s the twist – while many mid-luxury brands are struggling, upper-luxury brands like Hermès are holding strong, thanks to a combination of savvy strategy and timeless elegance. It’s not magic; it’s strategic brilliance.
1. Scarcity & Supply Control: The Hermès Magic
Hermès has mastered the art of keeping things scarce. You’ve probably seen the Birkin or Kelly bags on waitlists longer than most people’s New Year’s resolutions. The result? Desirability through scarcity. As the saying goes, “The more you have of something, the less you want it.” Which makes the inverse also true – when you can’t have something, that’s when you really want it, right?
2. Timelessness Over Trends
Hermès doesn’t jump on the latest trend bandwagon. It doesn’t need to. While other brands are busy chasing seasonal trends, Hermès is focused on creating products that stand the test of time. As Coco Chanel famously said, “Fashion fades, only style remains the same.” And Hermès knows that to perfection.
3. Direct Sales Model & Premium Pricing
Hermès doesn’t flood the market with its products. Instead, it controls its distribution fiercely, relying on direct sales (hello, exclusive boutiques!) and avoiding wholesale channels that can dilute the brand’s value. That means fewer stores, fewer discounts, and more premium pricing. It’s not just about selling – it’s about selling to the right people, the right way.
4. Targeting the Top Tier
Hermès isn’t worried about appealing to the average consumer. It focuses on top-tier customers whose wallets aren’t feeling the pinch. The wealthiest consumers are far less likely to be affected by global uncertainties, so Hermès is largely immune to the pressures that are dragging other brands down. It’s like throwing a party and only inviting the VIPs – you know, the ones who bring the champagne (not the boxed wine). 🍾
And Then, the Trump Tariffs Came…
If mid-luxury brands weren’t facing enough trouble, they were hit with a geopolitical bomb: Trump’s tariffs on European luxury goods.
In 2025, the U.S. government announced tariffs on European luxury exports, including fashion, leather goods, and watches. These tariffs were a game-changer for brands like Gucci, Prada, and Louis Vuitton, which rely heavily on the U.S. market for sales. The idea? To raise the cost of importing European luxury items into the U.S., making them more expensive for American consumers.
And, as you’d expect, it wasn’t pretty. LVMH, Kering, and other luxury giants saw their stock prices dip as tariffs loomed, with LVMH experiencing a 3-4% instant drop in shares.
The Tariff Aftermath
So, what happened when the tariffs were paused or rolled back? Well, some brands were quick to adjust. Hermès started raising prices in the U.S. to compensate for the anticipated tariffs. And LVMH decided to expand its production in the U.S. to sidestep these geopolitical uncertainties.
Interestingly, Swiss watch exports surged ahead of the tariffs. Sales jumped 18.2% in April 2025 as U.S. consumers bought in advance to avoid price hikes. Talk about getting ahead of the game!
So, What Can Luxury Brands Learn From All This?
Here’s the deal: if you’re a luxury brand today, you need to get strategic. Don’t just play for short-term volume. Think about long-term sustainability. It’s time to return to the basics, the stuff that works.
1. Reassess Your Positioning
Ask yourself: Are you just chasing volume growth, or are you creating true brand equity? If you’re stuck in the middle, now is the time to either move up or differentiate. As the wise business mind Michael Porter once said, “The essence of strategy is choosing what not to do.”
2. Focus on Margins, Not Just Sales
Just like Hermès, focus on operating margins and building an economically disciplined operation. If your margins dip below 20-25%, it’s time to re-evaluate. High margins aren’t just nice to have; they’re essential for long-term survival in the luxury space.
3. Control Your Distribution
Keep your products exclusive. Avoid over-expanding into outlets or discounting too heavily. Remember, controlled scarcity creates the kind of desire that drives high-end sales.
4. Timelessness Over Trends
In a world that’s constantly changing, timeless designs and products will always stand out. Build an offering that lasts forever rather than chasing short-lived trends.
Glimmer Of Hope
Let’s talk about Tapestry, the parent company of Coach and Kate Spade, which is having a stellar run in a market that’s struggling. While many mid-luxury brands are feeling the pinch, Tapestry has racked up a jaw-dropping 600% return over the past five years. What’s their secret? Unlike brands that are trying to please everyone, Tapestry has focused on premium positioning with a targeted, loyal customer base. Their strong performance in North America and disciplined approach to inventory management have helped them sidestep the volume-driven struggles faced by others. In short, they’ve cracked the code by being quality-focused and relationship-driven, not mass-market. Point being, if you follow the rules of the trade, you’ll outshine the rest; it doesn’t matter if you’re mid or ultra luxury.
The Final Word
As Coco Chanel put it (yes, I live by their quotes and so should you): “Luxury must be comfortable, otherwise it is not luxury.” Brands that can comfortably adapt to market shifts, build lasting relationships, and focus on timeless quality will remain at the top of the luxury heap.
The luxury market isn’t dying – it’s just evolving.
I hope my analysis helps you build a brand that can adapt to this continual evolution while sticking to its roots.
Cheers!